Introduction to ERP

Session 1
Introduction to
Enterprise Resources Planning

Welcome

Session 1
Introduction to
Enterprise Resources Planning

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Course Purpose

Provide the participant with the

knowledge and skills to understand
how to integrate the organization
and its people and processes and
why it is desirable

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Course Objectives (cont.)

Describe the tactics, tools, metrics, and
methodologies available for implementing
ERP
Describe how ERP can be used to sustain
competitive advantage
Identify common ERP pitfalls

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Activity 1-1: Role Play

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Roles
Finance Manager
Production Manager
Sales Manager
IT Manager
Purchasing Manager

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Considerations
What are some of the considerations of
choosing the sequence of the
implementation?

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Implementation Sequence
____ Accounting
____ Inventory
____ Master Production Schedule
____ Material Requirements Planning
____ Order Entry
____ Production Activity
____ Retail
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Activity Summary
What was the biggest issue you
faced in attempting to determine the
proper sequence?
*Complex issues are involved in making ERP
"work"
*Many different functional areas within the
organization must make compromises in deciding
how to implement an ERP system
*Different functional areas within an organization
have different concerns
*There is no set sequence. The sequence will be
relative to each organization and its operations.
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Course Outline
Session 1: Introduction to Enterprise Resources
Planning
Session 2: Developing an ERP Business Case
Session 3: Business Process Redesign
Session 4: The Value Chain Process

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Course Outline (cont.)

Session 5: Technology and International
Considerations in Implementing ERP
Session 6: Change Management and ERP
Implementations
Session 7: Implementing ERP
Session 8: Expanding on ERP

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Session 1 Objectives
Describe the concept of ERP
Define key terms as they relate to ERP
Describe the basic ERP model
Identify the five different ERP maturity levels
Understand the transition from MRP to ERP
State the benefits of ERP
State the pitfalls of ERP implementations
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Defining ERP
What is your definition of ERP?
Computer system
Planning and scheduling system
Software used to run an organization
An extension of old MRP II systems
A linking of the different plans within an
organization.
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Defining ERP
What is your definition of ERP?
A method for the effective
planning and control of all
resources needed to take,
make, ship, and account for
customer orders in a
manufacturing, distribution,
or service company.

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Characteristics of an ERP System

What characteristics identify an ERP
system?

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Possible Characteristics
Automated processes can run manually but
impractical.
Computerized can be done to achieve
above.
People-oriented system
Planning, control, monitoring
Data management - ERP systems simply
collect data.
Operations philosophy - JIT (Just-in-Time) or
Lean.
Knowledge management system
Integrates the plans of an organization
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The Organization as a System

People
and
Processes

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Organization is not simply a collection of

independently operated functional areas
a. A change in one part of an organization, like increasing sales
quotas, ripples into other functions, like increasing paperwork in payroll
and adding to the workload in shipping.
b. Systems thinking is a way of thinking about and understanding the
forces and interrelationships existing between the different functional
areas within an organization.
c. ERP systems must be viewed as a group of interrelated processes,
all managed by people. Understanding ERP requires an understanding
of how ERP is developed, managed, and maintained by people within
the organization
d. Understanding that an organization is a system will help in
understanding that different organizations can have different levels of
success with an ERP system.
e. Two different companies can buy the same ERP system but achieve
dramatically different results because of how each chooses to utilize
the ERP system. One could simply use it to collect data while the other
could use the ERP system to aid in strategic decision-making. The
difference is where the organization lies on the ERP maturity model
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Visual

Level of Sophistication

Knowledge
Management
Business
Strategy

Operations
Philosophy

Software Modules
Share Database

Data Management
System

(Reprinted with permission from Kapp, Karl M., with William F.

Latham and Hester N. Ford-Latham, Integrated Learning for ERP
Success. Copyright CRC Press, Boca Raton Florida, 2001)

Level of Value to the Organization

ERP Maturity Model

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ERP Maturity Model

one way to look at ERP systems, and how people
view the processes of an ERP system, is to see how
ERP has evolved from a data management system to
a knowledge management system. Different
organizations are at different places on this model.
Understanding the model will help understand the
different impacts ERP can have on an organization
and how organizations can use ERP to achieve
strategic goals.
The model basically moves from the level of basic
data to information to knowledge.
When a company works to implement an ERP
system, it needs to focus on achieving the highest
level in the hierarchy.
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Visual

Level of Sophistication

Knowledge
Management
Business
Strategy

Operations
Philosophy

Software Modules
Share Database

Data Management
System

(Reprinted with permission from Kapp, Karl M., with William F.

Latham and Hester N. Ford-Latham, Integrated Learning for ERP
Success. Copyright CRC Press, Boca Raton Florida, 2001)

Level of Value to the Organization

Data Management System

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Visual

Data Management System

Vast quantities of data are captured by an organization, ranging from market
demand to sales information.
A company can use its ERP system to simply capture data and move it from
one place to another.
At this level of maturity, one of the key actions the organization must take is to
ensure that the data is accurate and truly reflective of the organization.
For example, if someone inputs the wrong general ledger account number of a
purchasing code, dollars that were supposed to be withdrawn from one cost
center may be withdrawn from a different one. This kind of mistake can go
unnoticed for a period of time and then be discovered later.
ERP system to capture data would be where the production order is created by
the ERP system but the general manager schedules all production and
purchases manually. He types a PO into the system rather than allowing the
MRP run to automatically create a PO. The ERP system is used basically as
typewriter to create the production order
Data alone does not have value; information and knowledge have value.
Companies that implement an ERP system and view it as a means of
centralizing data do not receive the full ROI from their ERP system. The
effectiveness of ERP cannot be completely visualized without an understanding
of the integrated nature of the software modules.
What are some ramifications of not properly managing data?
What are some benefits of implementing a data management system?

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Visual

Level of Sophistication

Knowledge
Management
Business
Strategy

Operations
Philosophy

Software Modules
Share Database

Data Management
System

(Reprinted with permission from Kapp, Karl M., with William F.

Latham and Hester N. Ford-Latham, Integrated Learning for ERP
Success. Copyright CRC Press, Boca Raton Florida, 2001)

Level of Value to the Organization

Software Modules Share Database

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Software Modules Share Database

ERP can be viewed as a group of modules all connected to a central
database. While storage of data is important, this is a limited view of an ERP
system, overlooking the integration potential of the data.
All information comes from the same source-With this view of the ERP
system, the organization uses the system to share data.
For Example The order entry person enters data that is shared by the
production scheduler and the purchasing manager.
However, these individuals do not use the system for decision-making; they
independently make their decisions and input the results into the system.
The advantage is that everyone works from the same information;
the disadvantage is that the individuals are not taking advantage of the
functionality within the system to assist them with their jobs.
Everyone uses the same information-Everyone uses the same part
number, same customer information, and same planning information. They
just don't always agree with the information in the system.
For example, a purchasing manager may view demand for item 4767 and
notice that the system says he should order 400. However, he thinks the
estimation by other departments is wrong and he orders 600. Everyone can
see the data in the system but they still make decisions independent of the
data.
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Visual

Level of Sophistication

Knowledge
Management
Business
Strategy

Operations
Philosophy

Software Modules
Share Database

Data Management
System

(Reprinted with permission from Kapp, Karl M., with William F.

Latham and Hester N. Ford-Latham, Integrated Learning for ERP
Success. Copyright CRC Press, Boca Raton Florida, 2001)

Level of Value to the Organization

Operations Philosophy

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Operations Philosophy
ERP system is a collection of rules and procedures used for
planning and reporting on various aspects of an organization.
The third level is when data begins to turn into information. The
users of the system understand that the various inputs into the
system can all be used to help them make tactical decisions.
For example, the production manager uses the information
about customer orders to schedule production orders to meet
demand.
There is two-way communication between the execution
elements of the organization and the planning elements of the
organization.
Managers and other use the reports generated from the system
to make decisions about purchasing, planning, production,
delivery, and so on.
For example: managers use the information to take advantage
of new customer demands without physical disruption to the
production environment.
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Visual

Level of Sophistication

Knowledge
Management
Business
Strategy

Operations
Philosophy

Software Modules
Share Database

Data Management
System

(Reprinted with permission from Kapp, Karl M., with William F.

Latham and Hester N. Ford-Latham, Integrated Learning for ERP
Success. Copyright CRC Press, Boca Raton Florida, 2001)

Level of Value to the Organization

Business Strategy

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Business Strategy
when an organization begins to make strategic decisions
about competing in the marketplace based on the information
within the ERP system,
the system has moved to the level of a business philosophy
or, more accurately, the system is being used to articulate the
business philosophy to the entire organization.
Plans entered into the system are followed and exceptions are
entered into the system for everyone to see and react.
The organization relies on the information within the system to
guide and direct the organization toward its goals.
For example, the organization will determine whether or not
to purchase additional capacity based on the capacity
requirements indicated by the ERP system. The capacity
planning module communicates upward to the executives who
use the capacity requirements information to make decisions.
The information within the system is used to make decisions.
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Visual

Level of Sophistication

Knowledge
Management
Business
Strategy

Operations
Philosophy

Software Modules
Share Database

Data Management
System

(Reprinted with permission from Kapp, Karl M., with William F.

Latham and Hester N. Ford-Latham, Integrated Learning for ERP
Success. Copyright CRC Press, Boca Raton Florida, 2001)

Level of Value to the Organization

Knowledge Management

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Knowledge Management
knowledge found in an ERP system represents information that
can be used by executives, managers, and employees to more
effectively produce product, interface with customers, and
navigate through competitive markets.
When knowledge within the ERP system is used to make
competitive decisions and create an advantage over competitors,
and to help employees learn to continually improve, the system
is being used as a knowledge management system.
An example would be when an organization examines its
customer's service history and introduces a new product based
on trends and requests it uncovered from the customer service
history records.
The level of maturity of the knowledge management version of
an ERP system comes when the internal process are geared
toward providing knowledge to the organization to make
decisions. This knowledge is used at the executive level but also
at the execution level. Individual employees use the knowledge
contained within the system to assist them with their daily tasks.
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The Final Analysis: What is an ERP system?

A framework for
Organizing
All the different plans within the organization-from patient management plans in
hospitals to financial plans to budgets to production plans within manufacturing
organizations.
Defining
defines data and information within the organization. Everyone works from a
common database. My part number is the same as your part number. I can see
your forecast, you can see my production schedule. We can share departmental
goals and organizational goals with the common system and common
definitions.
Standardizing
It provides a standard language for communicating between and among different
groups of the organization.
Managing
Finally, it helps to manage the organization. The different systems, plans,
and agendas of all the different sub-units within any organization need to
be managed toward a common goal. The ERP system can help facilitate
that management.
ERP provides an organized communication system so that high-level operating
philosophies and strategies are followed during the tactical operations of the
business.
ERP as software vs. ERP as a process.

Emphasize that it is people and processes working together that will make
an ERP

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ERP Evolution Rings

System is integrated
(all applications on same database)

Applications became interfaced

(accounting could exchange data with inventory)

Applications performed
different functions
(accounting software, inventory software)

Programs operated independently

(spreadsheet, word processing,
custom algorithms)

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ERP Model
ENTERPRISE
RESOURCES
Customer
PLANNING (ERP) Relationship

Enterprise
Production
Systems

Management

Exec. Decision
Support
Strategic Plan

Manufacturing
Engineering

MANUFACTURING
RESOURCE
PLANNING (MRP II)

R&D

Supply
Human
Chain
Demand
Resources
Management
Production
Forecasting
Product
Activity
Engineering
Full Sales
Order
Control
MATERIAL
Support
Entry
Maintenance Inventory REQUIREMENTS
Management
Logistics and
Mgt
PLANNING (MRP) Customer
Distribution
Service
CRP
Quality
Field
Purchasing
Management
Master
Service
Scheduling
Std Costing
Advanced
Full
Accounting
Marketing
Costing
JIT
A/P, A/R, GL
Environmental
Support
Financial
Planning
Adapted from Langenwalter, Gary A. Enterprise
Resources Planning and Beyond (St Lucie Press/APICS
Series on Resource Management, 2000)

Manufacturing
Execution
System

Advanced
Supply
Planning and
Chain
Scheduling Execution

Sales and
Operations
Planning

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Benefits of an ERP System

Tangible
Intangible
Short-term
Long-term
Continuous improvement
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Benefits of an ERP System

Tangible

Reduced costs
Reduced inventory
Increased employment
Reduced staff
Improved cycle time

Intangible

More flexible organization

More efficient operations
Increased visibility of problems
Enable people to be less stressed

Short-term
Organization of information
Better management of operations

Long-term
Competitive advantage

Continuous improvement
A major benefit is that an ERP system helps an organization to reduce the number of
disparate information systems. Before implementing ERP systems, companies
usually have dozens or even hundreds of disparate systems which may or may not
talk to each other. These separate systems are a big problem for the business
because management and employees don't know what information is available
where. ERP eliminates this headache.

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Cost Drivers to Consider for ERP Implementation

ERP has many benefits, it also has many costs. Each of these costs can impact the organization's
motivation to implement an ERP system.
People
(outside consultants, time from "regular job") Implementing an ERP system requires a large
commitment of time from an internal implementation team as well as the time of other
employees not directly involved in the implementation. Sometimes, even an outside consultant
is needed to guide the team in the proper direction. Carefully consider all the personnel costs
involved with the implementation.
Training and education
education (people need to be trained)- To make sure the implementation is a success, people
need to be trained, not just once but several times. They need to understand the ERP system
and the integrated nature of ERP, as well as how to deal with change issues.
Time
Implementations take time. Time is money. The organization need to be aware of how long the
implementation may take and how much time, from the organization, is going to be used for the
implementation.
Tools
(software, hardware)-The costs for hardware and software are pretty visible; however, remember
that customizations can cost at the time of the customization, and later on when the
organization wants to upgrade. Also, as the organization grows and technology changes, new
investments in hardware and software will have to be made. These are not one-time costs. In
addition, most software has ongoing licensing fees which are usually assessed yearly.
Changes in processes
(processes must be addressed) Process will need to be changed when ERP is implemented. At
times, those changes, while good in the long term, can be expensive in the short term
Mistakes, rework, re-implementation
In far too many ERP implementations, mistakes occur, rework is done, and parts of the system
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need to be re-implemented. Those problems should be avoided. Good planning will helpVisual
to
prevent rework.

Metrics

Performance measurements
there are costs and benefits for an organization to determine if its ERP system is right for it or if the existing
ERP system is functioning at the desired maturity level. To make these types of decisions, an organization
must develop some measurements. Ideally, measurements are taken both prior to the ERP implementationcreating baselines against which to measure-and after the ERP implementation, to provide benchmarks for
organizational progress.
Inventory turns
This is the number of times inventory turns over in a certain time period. An ERP system should
help to increase inventory turns.
Increased productivity
An effective ERP implementation should help to increase productivity because of the reduction
of waste and the increase in the flow of information between various departments, which
enables faster decisions.
ROI
can be measured by dividing the overall costs by the overall benefits and multiplying by 100 to
get a percentage. Most organizations strive to have an ROI above 25% for major investments.
Benchmarking
An effective method of determining how an organization is doing relative to the implementation
is to take pre-implementation and post-implementation measurements of such items as
inventory turns.
Process cycle time reduced
The overall time needed to move material through the plant should be reduced.
Paperwork cycle times reduced

payback-In addition to a reduction in time for material flow, paperwork time should be reduced
as well.
Quality of product or service
Overall quality should improve because of visibility of problems exposed during
implementation.

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ERP Pitfalls
with any large-scale change or implementation within an organization, ERP implementations
Have some pitfalls that need to be avoided.
These pitfalls include:
Garbage in, garbage out
If inaccurate or incorrect data are input into the ERP system, no one will trust the results.
BOMs, customer files, item masters, and routings must be accurate and correct. If
garbage goes into the ERP system, then garbage will come out of the ERP system.
Automation of poor processes
One common mistake is that organizations want to take their ineffective and inefficient
processes and automate them. Automating poor processes only results in more efficient,
more effective poor processes. Organizational processes must align with organizational
goals before simply automating them.
Customization of software
Many organizations customize standard software and then find they must pay for that
customization every time the base software package is updated (sometimes as often as
every six months). Customization must be absolutely necessary.
Implemented as an afterthought
If the implementation is not given top priority within the organization, chances are it won't
get much support as other items gain top priority. The organization must be fully
committed to the implementation.
No upper management support
If upper management doesn't support the implementation-not just in words but in deedsthen the implementation is less likely to be successful. Upper management must be
behind the implementation.
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Session 1 Summary
Describe the concept of ERP
Define key terms as they relate to ERP
Describe the basic ERP model
Identify the five different ERP maturity levels
Understand the transition from MRP to ERP
State the benefits of ERP
State the pitfalls of ERP implementations
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